• U.S. Retailers Only
• Australia Retailers Only
Use Your POS Software for Better Vendor Management
By Cary Allington, Co-Owner, AA Data Company / ActionWatch
Retailers who appear sophisticated and informed can have significantly stronger positions when dealing with vendors. Fortunately, your POS system probably has most of the things you need to actually be more sophisticated and informed. Indeed, today’s POS systems help you manage your vendors and your whole business – but only if used well. Fortunately, many of the basic functions are easy to use and can very efficiently help you better manage your business.
Earlier this year we at AA Data Company/ActionWatch called over 2,000 surf and skate retailers for a short POS survey. Over half stated they are currently using a POS system. While it is great that such a large number of retailers in our industry are “using” current technology, there is a wide spectrum of how retailers are using their POS software, and therefore how much value they are actually receiving from the technology. Indeed, too many retailers are using their POS system as if it were only a cash register and missing substantial benefits, one of which is better vendor management.
James Dion, a well-published retail consultant, talks about the importance of “strategic use” of your retail software and stresses the value of using it for vendor management. He states that you should measure your vendors on multiple factors including:
1) Percent on-time delivery
2) Percent on-quantity delivery
3) Percent sold at full price in the first 90 days in inventory
4) Gross Margin Return On Inventory Investment (GMROII)
5) Maintained margin after all have sold
Dion states, “This information is very important when you are deciding what you should buy and from which vendors for next season. This information is very powerful to use in negotiations with vendors.”
Only the more sophisticated retail software programs will be able to produce a single report that provides data for each of these factors, but most retailers can use their existing POS software to help them collect the necessary data and keep track of it in a separate “Vendor Scorecard” spreadsheet. There may be other factors you want to use in judging your suppliers, such as credit terms and customer service satisfaction, which you can also record in your Vendor Scorecard spreadsheet.
The first two factors mentioned above focus on your vendors’ shipping abilities. If a vendor cannot ship everything you ordered at the time you were supposed to receive it you will miss sales since this produces inventory levels that are below your plan for a certain time period. Bob Culbertson of Calavera Board Shop in Arizona says that he is more forgiving with the really hot brands if they do not deliver complete. On the other hand, Culbertson says “if a brand is not flying off the shelves and producing a high GMROI, and it can’t deliver complete, that brand will not get any more orders in the next season.”
Gross Margin Return on Inventory Investment (GMROII or just GMROI) is a very important operating figure according to many top retail experts. A full explanation of it would require a separate article, but it is important to retailers because it uses both margin and inventory information to describe how much a retailer is getting back for every dollar invested in inventory. POS systems sometimes calculate this number for you, but if your’s does not, you can still use your POS software to calculate gross margin and average inventory cost, the two components that make GMROII (gross margin dollars / average inventory at cost = GMROII). This is an important factor in judging vendors because it helps you to look at each brand as an investment and compare its return to your other “investments,” i.e. brands. Mikke Pierson at ZJ Boarding House claims that this is the most important factor he uses. He looks at his reports every week and always checks GMROI first. “This very quickly tells me if the relationship between TOR [Turnover at Retail] and Gross Profit Percentage [Margin] is working for that particular Style, Vendor, Class or Department. If a small vendor has a high GMROI, I’m happy with that brand, and if a large vendor has a low GMROI—we have issues to discuss.”
Nearly all POS software can easily tell you the average margin for a brand during a given time period. Knowing how a brand’s margin held up through an entire season after you had to mark down the straggling items is important and should certainly be a factor when rating your suppliers.
Imagine one of your suppliers coming into your shop and telling you that they want you to take an earlier delivery and increase your minimum order quantity. If this supplier’s brand is not a top performer in your store and does not justify these changes, think how much easier it would be to negotiate with this supplier if you could lay down clear reports generated from data directly from your POS system—an unbiased resource. With these reports you show them how they have delivered late 40% of the time, their deliveries were only 70% complete and only 25% of their products sold at MSRP within 90 days. Then you go on to show them how their GMROI significantly trails your other vendors and how their margin, after their products are finally sold, came in at an average that is 5 points lower than the other brands you carry. Or, even if their brand is performing relatively well in your store, you can use the numbers to show how the brand is maximized with their current product offering and that you have already set up delivery timing to get the best possible GMROI with their brand. Any changes to the careful planning you have already done with this brand would negatively affect its performance in your store. This kind of response will certainly increase your power in vendor negotiations.
Since your POS software can only produce vendor reports if you have properly input your inventory with appropriate vendor information it is vital that retailers do this with some forethought. Indeed, I believe this “vendor management” concept should be extended to the brand level in our industry. Since many vendors offer multiple brands which may have varying degrees of success in your store, each brand should be considered individually. Most of today’s POS systems can easily do this if the retailer simply records the brand name in the Brand (a.k.a. Vendor) field. We have seen many retailers use only one field in their POS system to describe the brand, model name and item description, ignoring the many other fields available. Even more retailers will enter the distributor or parent company name in the vendor field, putting the brand name only in the Description field. Unfortunately, this technique makes many of the POS systems’ reporting functions unusable, because brand performance reports cannot be made. For example, your POS system can’t tell you how Etnies is doing vs. Emerica if you only put “Sole Tech” in the brand field for both of these brands.
Many POS systems also offer the ability to track multiple vendors for the same product. This is especially useful in our industry where items are purchased from both a manufacturer and a distributor (e.g., Eastern Skate Supply). For example, if you purchase a certain Element skateboard deck from two vendors, you can still track how the Element brand is doing in your store if you enter the product into your POS system with the vendor name in the Vendor field but enter “Element” in the Brand field, no matter who sold you the deck.
The most popular POS software programs today are truly multi-faceted retail management programs that efficiently simplify many retail management tasks. But too many retailers are using their systems like a simple cash register or not coding their inventory in a way that provides them maximum benefit. How you input inventory into your system can make a big difference in how much value you get from your POS system. Then, using your vendor and brand reports can help you have a stronger position in your vendor relationships by helping you both appear and be more sophisticated and informed.